Correlation Between MGE Energy and Pinnacle West
Can any of the company-specific risk be diversified away by investing in both MGE Energy and Pinnacle West at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining MGE Energy and Pinnacle West into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MGE Energy and Pinnacle West Capital, you can compare the effects of market volatilities on MGE Energy and Pinnacle West and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in MGE Energy with a short position of Pinnacle West. Check out your portfolio center. Please also check ongoing floating volatility patterns of MGE Energy and Pinnacle West.
Diversification Opportunities for MGE Energy and Pinnacle West
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between MGE and Pinnacle is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding MGE Energy and Pinnacle West Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pinnacle West Capital and MGE Energy is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on MGE Energy are associated (or correlated) with Pinnacle West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pinnacle West Capital has no effect on the direction of MGE Energy i.e., MGE Energy and Pinnacle West go up and down completely randomly.
Pair Corralation between MGE Energy and Pinnacle West
Given the investment horizon of 90 days MGE Energy is expected to generate 1.3 times more return on investment than Pinnacle West. However, MGE Energy is 1.3 times more volatile than Pinnacle West Capital. It trades about 0.17 of its potential returns per unit of risk. Pinnacle West Capital is currently generating about 0.17 per unit of risk. If you would invest 7,730 in MGE Energy on August 24, 2024 and sell it today you would earn a total of 2,683 from holding MGE Energy or generate 34.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
MGE Energy vs. Pinnacle West Capital
Performance |
| Timeline |
| MGE Energy |
| Pinnacle West Capital |
MGE Energy and Pinnacle West Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MGE Energy and Pinnacle West
The main advantage of trading using opposite MGE Energy and Pinnacle West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MGE Energy position performs unexpectedly, Pinnacle West can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Pinnacle West will offset losses from the drop in Pinnacle West's long position.| MGE Energy vs. CMS Energy | MGE Energy vs. Ameren Corp | MGE Energy vs. Pinnacle West Capital | MGE Energy vs. Evergy, |
| Pinnacle West vs. CMS Energy | Pinnacle West vs. Ameren Corp | Pinnacle West vs. MGE Energy | Pinnacle West vs. Evergy, |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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